Crude Slips as Analysts Warn of Oil Likely Heading Further Downward in 2017

U.S. crude settled lower at $53.17 per barrel on Friday

As U.S. crude settled lower at $53.17 per barrel on Friday, a respected strategist warned that oil is going to "massively disappoint" throughout 2017.

Raoul Pal, macro investor, strategist, and founder of financial publication The Global Macro Investor, told CNBC that speculative positioning on oil futures contracts is the "biggest in all of history," and that crude prices and the U.S. dollar have been rising and falling in tandem of late.

This phenomena, he said, "makes me think that if speculators are record long, and it's diverging from what the dollar's doing, and I think the dollar goes up, then I think on balance, over this year, crude will massively disappoint to the downside."

Pal made his prediction as West Texas Intermediate settled down 61 cents to $53.17 a barrel (albeit ending the week 1.4 percent higher), and Brent dropped 75 cents to $55.49 per barrel.

Many factors account for oil's rocky performance over the past few weeks, including Baker Hughes data showing that U.S. drillers added 15 oil rigs this week, the 12th gain in 13 weeks and bringing the total count to 566 - the most since November 2015.

Mark Watkins, regional investment manager at U.S. Bank Private Client Group, said, "Supply is a big factor right now, and you have the U.S. really filling that gap that OPEC has left open."

John Kilduff, founding partner of Again Capital, pointed out that more trouble awaits oil due to weak economic data released early on Friday: "The durable goods and GDP hurt oil in particular; we're seeing gasoline demand down a lot."

This is on top of troubling reports that Iran has exceeded its deemed OPEC production ceiling of just under 3.8 million barrels per day (bpd)  and Libya is heading towards its goal of pumping 900,000 bpd in the next few months.

In citing the rising dollar as another negative for oil price performance (the greenback is estimated to rise another 25 percent this year due to U.S. president Donald Trump's protectionist trade policies), Pal said, "the probability is that crude oil will go lower, not higher, this year."

This view was corroborated by Carsten Fritsch, analyst for Commerzbank, who stated in a note, "Given that speculative net long positions in Brent and WTI are already at a record-high level, the correction potential is therefore growing all the time."

This view flies in the face of recent forecasts made by Middle Eastern countries intent on boosting their own production capabilities: for example, Essam Al-Marzouk, oil minister for Kuwait (which plans to increase its output to 4 million barrels per day by 2020), said on Wednesday that oil will trade at $55 to $60 a barrel this year and his country will assume a $45 price in its budget for fiscal year 2017-18.